Editor’s note: On March 18, the “China Textile and Apparel Industry Overseas Investment Lecture Series” co-sponsored by the Marketing Department of the China National Textile and Apparel Federation, the Textile Industry Branch of the China Council for the Promotion of International Trade and other units was held at the Shanghai National Convention and Exhibition Center. At this event, many companies praised authoritative lawyers and financial experts for their analysis of the current status, financial policies and financial risks of overseas investment by textile and apparel companies.
Currently, as Chinese textile and apparel companies continue to accelerate their overseas investments and accumulate experience, companies are paying more attention and thinking when making cross-border layouts. They know that in the process of “going global”, only by having a deeper understanding of relevant domestic policies, the investment environment of investment destinations, and various risks can enterprises reduce risks and improve the success rate of overseas investments. .
Wu Ming, Partner of Beijing Dacheng (Shanghai) Law Firm
Financing, guarantees and insurance are the financial magic weapons for overseas investment
As domestic labor, environmental protection, land and other costs continue to increase, the trend of textile companies moving production bases abroad should not change. However, “going out” should not be a low-end industrial transfer. Enterprises should think deeply about how to use global resources to accelerate the adjustment and upgrading of my country’s textile industry.
According to observations, companies that “go global” are roughly divided into five types: First, companies of average size and strength generally choose to transfer production capacity to Southeast Asia; second, brand companies with super strength generally choose to transfer research and development , design, brand and channel expansion areas are placed for overseas development; third, companies that are susceptible to trade barriers will usually choose to change their origin; fourth, companies with large demand for raw materials will choose the country of origin of cotton; fifth, there are core countries Competitive companies will choose to transfer production capacity to developed countries.
my country currently does not have a dedicated “Overseas Investment Law”, but from the 2006 “Notice on Relevant Policies to Promote my country’s Textile Industry to Transform the Foreign Trade Growth Mode and Support the “Going Out” of Textile Enterprises” to the accelerated promotion launched by my country in 2015 Financial reform measures such as the market-oriented reform of interest rates and the improvement of the market-oriented formation mechanism of the RMB exchange rate have helped enterprises solve financial risks in exchange rates, interest rates, liquidity, and security, achieve global coordination of funds, and reduce risks caused by exchange rate controls. the financial risks it brings. The government has further relaxed relevant policies and simplified the approval procedures for commercial banks to set up overseas branches and mergers and acquisitions, so that domestic financial institutions can follow their own companies to go abroad and provide direct services to overseas companies.
At present, the financial risks of overseas investment mainly include financing, foreign exchange and interest rates. If the enterprise’s asset-liability ratio is high, banks are unwilling to lend, or the guarantee conditions are unqualified, the enterprise’s financing will be restricted. Changes in exchange rates and increases or decreases in interest rates also have a certain impact on investment methods. In this regard, enterprises should establish a foreign exchange risk management strategy before investing, make good currency choices, optimize currency combinations, and diversify operations to reduce risks. In addition, companies can reduce losses through overseas investment insurance. In 2014, anti-China vandalism occurred in Vietnam, and many Chinese and Taiwanese companies in Vietnam suffered heavy losses as a result. After the incident, the amount of compensation paid by the Vietnamese government was far less than the actual loss. Through comparison, it can be seen that there were a total of 233 property insurance claims cases filed by Taiwanese companies. However, the number of claims settled by mainland companies is very small, indicating that mainland companies generally have low awareness of insurance.
In response to the above risks, I believe that companies should find financial solutions from three aspects: financing, guarantees, and insurance. First, companies can use political risk agencies to conduct a systematic assessment of the political, legal, and social environment of the investment destination country. In recent years, my country has also been trying to establish a national risk system. For the 60 countries that Chinese companies are most concerned about, the China Export and Credit Insurance Corporation has released a country risk report to strengthen communication between companies and overseas institutions.
Secondly, enterprises can make full use of overseas investment insurance. Multilateral investment guarantee agencies under the World Bank Group provide investment guarantees, such as the Overseas Private Investment Corporation of the United States, the Trade Bureau of the Ministry of International Trade and Industry of Japan, the Trust Inspection Corporation of Germany and Heim Sri Lanka Credit Insurance Company, etc.
Thirdly, companies can diversify and diversify their investments and choose different countries, industries and products to invest in. When choosing an investment method, you can choose a joint venture or cooperative operation to increase the proportion of local employees in the company.
Bao Haifeng, Partner, PwC Shanghai M&A Services Department
When investing in ASEAN countries, make priority decisions first
The diverse characteristics of ASEAN countries come from their past colonial experience and current political structure. Most ASEAN countries have achieved rapid economic development in the past 25 years. The region’s economic vitality and steadily expanding cooperation have formed a virtuous cycle. ASEAN regional harmony provides support and guarantee for the business environment. In a sense, the region is transforming into a quasi-preferential trade union.
The rise of the middle class in ASEAN countries has driven strong growth in domestic demand.��It also has the potential to radiate to the entire ASEAN region based on one country, with good investment opportunities and considerable profit growth in a wide range of fields. Second, skilled, low-cost labor, tax exemptions, low restrictions on foreign ownership and other policies make it easier to do business here. Thirdly, compared with countries in other regions, the profit margins of Southeast Asian companies are slightly higher by about 2% to 3%.
However, the economic development in the ASEAN region is highly polarized. For example, Singapore’s per capita income is 50 times that of Cambodia. The economic growth levels of ASEAN member states are also very different. They are resource-poor and are newly industrialized economies. For example, Singapore has adopted a “labor-intensive export-oriented model” – driving the development of its own economy by producing export products while opening up to foreign investment to promote Foreign direct investment inflows. In addition, the social development and political formations of ASEAN countries are also extremely different. As reforms progress, doing business in Singapore, Thailand and Malaysia has become comfortable, while other countries still have room for improvement.
Regarding Chinese companies investing in Southeast Asia, I believe that, on the one hand, Southeast Asia provides a large number of investment opportunities suitable for companies with different needs; but on the other hand, diversity also intensifies the conflict of cultures. Corruption remains a serious problem, and Southeast Asian countries are one of the most problematic regions in the world in terms of corruption and bureaucracy, and while this is expected to improve in the future, there are still many problems with doing business in the region. The government and related institutions behind the project also need to be considered as stakeholders. At the same time, many industries in the region have yet to mature, and the market is still fragmented and immature. There are also many problems in mergers and acquisitions. Due to the lack of credible data, evaluation and decision-making have become quite difficult. There are few ready-made industry reports in Southeast Asia, financial statements of private companies are often not disclosed, and business practices vary, making it difficult to negotiate an agreement.
So how to invest in Southeast Asia? First of all, we must understand the synergies that the acquisition will bring as early as possible. Many companies in ASEAN countries have corruption problems. The buyer should classify and judge these. Which ones can be managed? What would be the trading cons? Secondly, the market in the ASEAN region is very diversified. Buyers should determine market priorities, allocate resources to higher-priority markets and regions, analyze their markets and business opportunities by country, and find suitable M&A targets as early as possible. Plan for post-merger expansion exit plans. Thirdly, spend more time communicating with local teams and intermediaries to find senior managers with extensive experience in the local market; since most local companies are private companies, it is also very important to conduct personal due diligence on the shareholders of the target company.
